Germany: German rules for restructuring relief

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Germany: German rules for restructuring relief

Linn
Braun

Alexander Linn

Thorsten Braun

The German Federal Tax Court has ruled that the existing administrative practice on the exemption of certain tax technical gains, triggered in restructurings of companies facing difficulties, lacks a legal basis and cannot be applied any longer (case: GrS 1/15). Shortly after the judgment, however, the German legislator introduced draft provisions that would reinstate the past administrative practice.

Under administrative guidance issued on March 27 2003 on restructuring relief (Sanierungserlass), certain tax technical gains triggered by debt waivers and other debt restructurings as part of an overall concept to prevent insolvency of a company in difficulty and to restore its competitiveness (covered gains) were subject to a special tax treatment. The covered gains could be offset in full against existing tax loss carry forwards without application of minimum taxation rules and any tax on exceeding covered gains could be deferred and potentially waived. In proceedings initiated by a taxpayer, which realised similar gains but where tax authorities denied the application of the restructuring relief, the German Federal Fiscal Court ruled that there is no need to analyse whether the requirements set forth in the administrative guidance were met, as this guidance is void because it lacks a legal basis.

In a reaction to this judgment, the German Upper House of Parliament has proposed introducing provisions in the German Income Tax Act and Trade Tax Act, which would effectively reinstate the past practice. Under the proposed rules, a company can elect to exempt gains from debt restructuring measures, which are part of a restructuring of a company in difficulty and have the purpose to restore competitiveness of such a company. If a company applies for such a tax exemption, the company would lose all tax carry forwards and current year losses. It is proposed that the rules will apply to all open cases. If enacted, there would not be a period where no restructuring relief was available to companies undergoing a qualified debt restructuring.

As a reaction to discussions in literature over whether the administrative practice (if applicable) is in line with EU state aid rules, the legislative proposal would include a provision that defers the enactment of the new rules until the European Commission approves the measure. By notifying the Commission of the measure, an approval (no-aid decision or positive decision under Article 4, paragraph 2 or 3 of Council Regulation (EU) 2015/1589), will provide certainty for any company making use of the new rules. This intention to notify the measure shows the increased importance of state aid rules in the area of taxation, but also shows the increased awareness of legislators of these rules, which is a welcome step towards more certainty.

Alexander Linn (allinn@deloitte.de) and Thorsten Braun (tbraun@deloitte.de)

Deloitte

Tel: +49 89 29036 8558 and +49 69 75695 6444

Website: www.deloitte.de

more across site & shared bottom lb ros

More from across our site

Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
A ‘joint understanding’ among G7 countries that ‘defends American interests’ is set to be announced, Scott Bessent claimed
The ‘big four’ firm’s inaugural annual report unveiled a sharp drop in profits for 2024; in other news, Baker McKenzie and Perkins Coie expanded their US tax benches
Representatives from the two countries focused on TP as they met this week to evaluate progress under a previously signed agreement – it is understood
The UK accountancy firm’s transfer pricing lead tells ITR about his expat lifestyle, taking risks, and what makes tax cool
Dolphin Drilling intends to discuss the final liability amount and manner of settlement with HM Revenue and Customs
Winning the case against the 20% VAT imposition was always going to be an uphill challenge for the claimants, UK tax advisers argue
A ‘paradigm shift’ in Chile’s tax enforcement requires compliance architecture built on proactive governance, strategic documentation and active monitoring of judicial developments
Gift this article